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Softer Inflation Dents US Dollar Ahead of Fed Decision

Last week’s high: $1.2362

Last week’s low: $1.2238

Signs of Weakening Inflation Weigh Heavily on US Dollar

As the latest US producer price index and consumer price index figures fell short of forecast this left the US Dollar on a generally weaker footing.

Although neither measure is the Federal Reserve’s preferred gauge of inflation these signs of weakening price pressures still weighed on USD exchange rates.

The European Central Bank’s (ECB) volley of monetary loosening increased the risk of greater Fed action, meanwhile.

With the White House still criticising policymakers for not cutting interest rates more aggressively investors remain wary of the possibility of greater dovishness.

Increasing hopes that the UK could avoid crashing out of the EU at the end of October propelled the GBP/USD exchange rate into a sharp leap ahead of the weekend.

US Dollar Outlook: Fed Rate Decision Set to Drag on USD

Anticipation ahead of Wednesday’s Federal Open Market Committee rate announcement could keep the US Dollar on a bearish trend.

If policymakers deliver a more dovish rate cut than anticipated the GBP/USD exchange rate is likely to benefit.

On the other hand, signs of continued hawkishness within the Fed could limit the risk of further monetary loosening and boost the US Dollar against its rivals.

The GBP/USD exchange rate is also likely to weaken as markets brace for the Bank of England’s (BoE) policy meeting.

While no action is expected from the BoE at this stage the mood towards the Pound could sour if the balance appears to be shifting in favour of lower interest rates.

Key Events

18th September

09:30   UK Consumer Price Index

19:00   US Federal Open Market Committee Rate Decision

19th September

12:00   UK Bank of England Rate Decision

 

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